Audit Report
To all shareholders of Huludao Zinc Industry Co., Ltd.:
I. Audit Opinion
We have audited the financial statements of Huludao Zinc Industry Co., Ltd. (hereinafter referred to as "Zinc Industry"), which include the consolidated and parent company balance sheets as of December 31, 2025, the consolidated and parent company income statements for the year ended December 31, 2025, the consolidated and parent company cash flow statements, the consolidated and parent company statements of changes in owners' equity, and related notes to the financial statements.
In our opinion, the accompanying financial statements are prepared, in all material respects, in accordance with the requirements of the enterprise accounting standards and fairly present the consolidated and parent company financial position of Zinc Industry as of December 31, 2025, and the consolidated and parent company operating results and cash flows for the year ended December 31, 2025.
II. Basis for Audit Opinion
We conducted our audit in accordance with the standards of the Chinese Institute of Certified Public Accountants. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of Financial Statements" section of our report. We are independent of Zinc Industry in accordance with the Code of Professional Ethics for Certified Public Accountants and the independence requirements of the Chinese Institute of Certified Public Accountants, and we have fulfilled our other professional ethical responsibilities. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
III. Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the current period. These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Revenue Recognition
1. Description of the Matter
Refer to Note II, 26 "Revenue Recognition Principles and Measurement Methods" and Note V, 39 "Disclosure of Revenue and Cost of Sales" for the accounting policies on revenue recognition.
The revenue of Zinc Industry is primarily from the sales of non-ferrous metal smelting products and related by-products. The consolidated revenue recognized in the income statement for 2025 was RMB 18,529,131,568.47.
Given the significant amount of revenue and its importance as a key financial indicator for Zinc Industry, there is an inherent risk that management may inappropriately recognize revenue to achieve specific targets or expectations. Therefore, we have identified revenue recognition as a key audit matter.
2. Audit Response
Our audit procedures for revenue recognition included, but were not limited to, the following:
(1) Understanding and evaluating the design and operating effectiveness of key internal controls related to revenue recognition. (2) Selecting samples of major sales contracts and, in conjunction with the contract terms, evaluating whether the revenue recognition policy complies with the requirements of enterprise accounting standards and the company's accounting policies. This included examining the transaction content, pricing principles, delivery methods, and settlement terms. (3) In conjunction with the audit of accounts receivable and contract liabilities, we performed confirmation procedures by selecting samples to inquire about sales amounts, related party balances, and other information to assess the authenticity and accuracy of revenue recognition. (4) We performed analytical procedures on revenue and gross profit margins by product type to identify any significant fluctuations in revenue amounts. (5) We selected samples of revenue transactions recorded during the year and vouched them to supporting documents such as financial vouchers, sales invoices, delivery orders, and sales settlement statements to evaluate whether revenue recognition complied with Zinc Industry's revenue recognition accounting policies. (6) We performed cut-off tests on revenue to assess whether revenue was recognized in the correct accounting period.